Multiple Choice
A firm produces 400 units of output at a total cost of \$1,200. If total variable costs are \$1,000, what is the firm's total fixed cost?
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10. The Costs of Production
Cost-Minimizing Combination of Labor and Capital
Multiple Choice
In the context of cost-minimization, the total cost per unit is equal to:
A
variable cost (VC), which is the cost of variable inputs only
B
average cost (AC), which is total cost divided by output
C
fixed cost (FC), which does not vary with output
D
marginal cost (MC), which is the change in total cost from producing one more unit
Verified step by step guidance1
Step 1: Understand the definitions of the cost concepts involved. Variable Cost (VC) refers to costs that change with the level of output, Fixed Cost (FC) refers to costs that remain constant regardless of output, Marginal Cost (MC) is the additional cost of producing one more unit, and Average Cost (AC) is the total cost divided by the quantity of output produced.
Step 2: Recall that Total Cost (TC) is the sum of Fixed Cost and Variable Cost, expressed as \(\text{TC} = \text{FC} + \text{VC}\).
Step 3: Define Average Cost (AC) as the total cost per unit of output, which can be written as \(\text{AC} = \frac{\text{TC}}{Q}\), where \(Q\) is the quantity of output produced.
Step 4: Recognize that since AC divides the total cost by output, it represents the cost per unit, which aligns with the problem's description of total cost per unit.
Step 5: Conclude that among the options, Average Cost (AC) correctly represents the total cost per unit, distinguishing it from VC, FC, and MC, which represent different cost concepts.
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